1. K. A. THANIKKACHALAM, J.---Pursuant to the direction by this Court in T. C. P. No.251 of 1980, dated November 4, 1980, the Tribunal referred the following question for the opinion to this Court, under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the "Act").
2. "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining an addition of Rs.85,543?"
3. The assessee is a Hindu undivided family. For the assessment year 1971-72, the assessee returned a sum of Rs.5,034 as income from interest received from certain parties. The assessee's premises and also the premises of certain other relatives of the assessee, like his father-in-law, brother-in--- law, etc., were searched by the Department. The search revealed that the assessee was in possession of pronotes executed in favour of the assessee's relations, viz., Sint. Padmalochani Animal (wife), Muthukumarappa Reddiar (father-in-law), Jayalakshmi Animal (mother-in-law), Veerappa Rajaram Reddiar (brother-in-law), and Bangaru Reddiar (close relative). Cerain cash books were also found 'and seized. The Income-tax Officer found that the seized books contained transactions of the above parties for various years. The Income-tax Officer questioned the assessee with regard to the seized materials. The assessee claimed that the ponotes belonging to these persons, in whose names they are standing, were kept in the custody of the assessee for the sake of convenience. Each one of the above persons had his or her own funds for advancing money to others and they are enjoying the interest income derived there from, The Income-tax Officer did not, however, accept this contention and held that the business alleged to have been carried on in the names of these parties actually belonged to the assessee and the entire income was assessable in his hands. The assessee did not produce any books of account. No books had been stated to have been maintained. A list of persons from whom interest is alleged to have been received was produced. There was no evidence to support the actual extent of the interest collected. A list of the out standings at the end of the year was also filed. The total amounts standing in the names of these persons including the assessee came to Rs.6,14,764, including the sum of Rs.1,06,424 relating to the assessee.
4. The Income-tax Officer estimated the assessee's income from money-lending business by adopting 24 percent. On the above outstandings as per pronotes at Rs.1,47,543. On the assessee's appeal, the Appellate Assistant Commissioner upheld the Income-tax Officer's estimate of money- lending business at Rs.1,47,543, while deleting the other additions by the Income-tax Officer. Both the assessee and the Department appealed against the Appellate Assistant Commissioner's order, the former against the Appellate Assistant Commissioner's sustenance of the addition of money- lending income of Rs.1,47,543.
5. On hearing both the parties, on appeal, the Tribunal carne to the conclusion that though the parties in question were closely related to the assessee there was no evidence to hold that the assessee was holding these amounts in benami names. The Tribunal held that these persons cannot be held as the benamidars of the assessee, who had invested moneys in their names.
6. Ultimately, the Tribunal sustained interest at 22 percent. Instead of 24 per cent adopted by the authorities below. The Tribunal further held that the interest payable to the outsiders could be put at about 10 percent. On an average. The Income-tax Officer has found that the amounts standing in the names of the alleged benamidars came to Rs.5,08,340. The Tribunal treated a sum of Rs.50,000 in round figures at 10 percent. Interest as owing to these parties. The overall outstanding of the assessee is fixed at Rs.6,14,764. Reducing the interest to 22 percent. The Tribunal reduced the interest on the above by another Rs.12,000. From the amount sustained by way of interest, the Tribunal has also reduced a. Sum or Rs.62,000 (Rs.50,000 plus Rs.12,000). Both the appeals were allowed partly.
7. Before us, learned counsel appearing for the assessee submitted that when the authorities below accepted the explanation offered by the assessee with regard to the entire principal sum as belonging to the persons in whose names the pronotes were standing. They ought to-have held that the interest income should also belong to them. When the Tribunal found reason to allow interest at Rs.62,000, the Tribunal on the same reasoning ought to have allowed the entire interest.
8. The Tribunal came to the conclusion that the assessee is not a benamidar and his relatives are only the true owners of the amounts advanced by them and their capacity to advance was also not doubted by the Tribunal. It was further submitted that when the Tribunal was good enough to reduce the interest rate to 22 percent. From 24 percent. The Tribunal ought to have deleted the inclusion of a portion of the of the interest in the hands of the assessee. It was, therefore, submitted that the Tribunal ought to have deleted the entire addition.
9. On the other hand, learned standing counsel appearing for the Department, submitted that considering the fact that the assessee was rendering services to his relatives in the matter of advancing amounts to third parties, the Tribunal held that the assessee would have used a portion of the interest collected for his personal purpose, and, therefore, to that extent, the addition is called for. It was, therefore, contended that the order of the Tribunal in deleting Rs.62,000 out of the entire interest amount is not in order. According to learned standing counsel the Tribunal ought to have sustained the entire interest amount of Rs.1,47,543.
10. We have heard the rival submissions. The fact remains that the assessee's premises was searched wherein the Department found pronotes standing in the names of the close relatives of the assessee. According to the Department, it is the assessee's amounts, which were advanced in the names of various relatives, and, therefore, these amounts should be assessed in the hands of the assessee. However, the Tribunal held that the assessee is not a benamidar for close relatives. It was further held that his close relatives are having means to advance the amounts on the pronotes.
11. Therefore, according to the Tribunal, the amounts standing in the names of the relatives of the assessee belong to them and the assessee has got nothing to do with that. Therefore, the principal amount was not assessable in the hands of the assessee, is the conclusion of the Tribunal.
12. Learned counsel appearing for the assessee submitted that, when the Tribunal found reasons to allow Rs.62,000 out of Rs.1,47,543, on the same reasoning, the Tribunal ought to have allowed the balance of interest It remains to be seen that the principal amounts were not added in the hands of the assessee. The Tribunal sustained out of Rs.1,47,543 a sum of Rs.85,543. According to the Tribunal, the assessee would have appropriated certain interest amount to himself out of the total collection of the interest amount.
13. "There should be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact, because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact. "